Heavy Phone Taxes Push Millions Away from the Internet in Pakistan – Report

Pakistan is moving towards digitalisation, but millions of people still cannot afford basic internet access. A new policy report has highlighted a major problem: high phone taxes and internet service costs, making digital access too expensive for ordinary citizens in Pakistan. While the government promotes online education, digital banking, freelancing, and e-commerce, high taxes on mobile phones are creating barriers for the very people who need these services the most.

The report, titled “Taxing Connectivity: How Taxes and Tariffs Deepen Pakistan’s Digital Divide,” was published by the Policy Research Institute of Market Economy (PRIME). According to the report, Pakistan has good mobile network coverage, with around 81% of the population living in areas where 3G and 4G services are available. However, only 29% of people actually use the internet. This means there is a huge 52% gap between coverage and usage, mainly because many people simply cannot afford smartphones and internet packages.

Heavy Phone Taxes Push Millions Away from the Internet in Pakistan – Report

The study explained that smartphones are still treated as luxury products instead of essential tools for communication, education, and business. Today, mobile phones are necessary for students attending online classes, freelancers working with international clients, and small businesses selling products online. Yet the country continues to impose multiple taxes and duties on mobile devices and telecom services.

Imported smartphones face several charges, including sales tax, regulatory duty, advance income tax, and withholding tax. Phones costing more than $500 are charged an even higher sales tax of 25%. As a result, the price of premium smartphones rises sharply. The report estimated that a phone worth $700 internationally ends up costing nearly Rs294,500 in Pakistan after adding taxes and duties. Around Rs98,500 of this amount comes only from taxes.

These high prices are also encouraging the growth of the grey market. Many people buy smuggled or illegally patched phones because official devices are too expensive. Some sellers alter phone IMEI numbers to bypass Pakistan Telecommunication Authority (PTA) regulations. The report mentioned that the PTA blocked nearly 100 million illegal devices during the fiscal year 2024-25, including many with cloned IMEI numbers.

The report also reviewed Pakistan’s Mobile Device Manufacturing Policy (MDMP) 2020. The government introduced the policy to encourage local production of mobile phones and reduce reliance on imports. While Pakistan now assembles over 30 million phones every year and more than 30 companies are operating assembly plants, real localisation remains very low. Most companies still import completely knocked down (CKD) kits and assemble phones locally instead of manufacturing important components within the country.

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According to the study, localisation is still below 10%, far behind the government’s target of 49%. This means Pakistan continues spending large amounts of foreign exchange on imported parts despite the growth in local assembly.

The report also highlighted the social impact of expensive smartphones. For poor households, even a basic smartphone costing around Rs25,000 can consume nearly 62% of their monthly spending. This makes digital access extremely difficult for low-income families. Women, students, freelancers, and gig workers are among the most affected groups because many of them depend on affordable internet access to study or earn a living.

Pakistan currently has over 1.5 million freelancers who contribute to the digital economy. Affordable smartphones and internet access are becoming more important for economic growth and employment opportunities. The report suggested reducing taxes on mobile phones and telecom services and treating digital connectivity as essential national infrastructure instead of using it mainly as a source of revenue.

Without affordable digital access, Pakistan’s dream of becoming a digitally connected economy may remain difficult to achieve.